Aloha Air halting passenger service after 62 years

Aloha Airlines ends six decades as "the people's airline" today with the abrupt shutdown of its passenger service and the firing of 1,900 workers.

The state's No. 2 airline succumbed to a fierce, two-year interisland fare war and a rapid rise in jet fuel prices.

The shutdown, which left passengers holding potentially worthless tickets, will likely lead to fare hikes by the state's surviving two carriers, Hawaiian and go! airlines.

Aloha pulled the plug just 11 days after the airline filed for bankruptcy protection and as lawmakers rushed to assemble a bail-out package.

Tearful employees said they were shocked yesterday morning when they got the memo from Aloha CEO David Banmiller, saying they would no longer operate the airline's 700 weekly interisland flights and 120 flights to the West Coast.

"This is an incredibly dark day for Hawaii," Banmiller said in a news release. "We simply ran out of time to find a qualified buyer or secure continued financing for our passenger service. We had no choice but to take this action."

Tourism officials said the loss of Aloha will cause confusion and inconvenience for many visitors in the short term but shouldn't have lasting impact on the state's No. 1 industry.

For interisland travelers, Aloha's departure means the loss of an estimated 88,000 seats per week. Hawaiian and go! said they will add enough capacity to make up 56,000 of those seats, but also hinted that prices might rise as early as next week.

Hawaiian and go! said they plan to keep interisland fares at $49 at least until April 7.

Fares will likely rise, especially if oil prices remain at near-record levels of about $100 a barrel, said local aviation industry historian Peter Forman.

Forman, author of the 2005 book "Wings of Paradise: Hawaii's Incomparable Airlines," predicted that go! and Hawaiian will increase their base fares from $49 to at least $75 by the end of the year.

"The day of reckoning is coming soon for those of us who have enjoyed the fare war for the past year and a half," Forman said.

Aloha filed for bankruptcy protection March 20 — the second time since late 2004 — after it lost more than $120 million during the past two years.

The company blamed "unfair competition" by go! airlines, whose June 2006 entry into the interisland market kicked off a price war in which the cost of travel to the Neighbor Islands dropped by about half to $39.

Aloha said go! and its Phoenix-based parent, the Mesa Air Group, sold tickets below cost to drive out competition.

But in previous comments, Ornstein said Mesa didn't plan to drive Aloha out of business. Ornstein said his company attempted to invest $20 million in Aloha when it was trying to emerge from its earlier bankruptcy.

go! was quick to increase its flights following news of Aloha's closure.

"In response to demand, we have significantly increased the number of flights in all markets providing high frequency service throughout the business day," Ornstein said in a news release.

Hawaiian, the state's largest airline, said it will increase its daily passenger seat count on interisland flights by 42%, or 6,000 seats per day.

Hawaiian and go! said they will honor Aloha tickets that were purchased for travel from Tuesday through Thursday on stand-by basis.

"All of us are deeply saddened to learn that Aloha Airlines has succumbed to the ever-increasing costs and demands of today's airline industry," said Mark Dunkerley, Hawaiian's chief executive officer.

"Aloha was a proud airline with a 61-year legacy of serving Hawaii's residents and visitors."

Established in 1946 as Trans-Pacific Airlines, Aloha is the state's second-largest airline with about 3,500 workers.

The company first filed for bankruptcy protection in December 2004 after fuel prices began to soar and emerged from reorganization in February 2006 under new ownership led by California billionaire Ron Burkle and former football star Willie Gault.

Since then, it had strengthened its position by adding United Airlines as an investor and by naming former Continental Airlines CEO Gordon Bethune as its chairman.

Yesterday's announcement shocked state legislators, who are attempting to come up with a last-minute bail-out plan that included millions of dollars in state loan guarantees for the financially strapped company.

Honolulu Mayor Mufi Hannemann and Gov. Linda Lingle said the city and state are ready to assist affected Aloha employees through their various job-seeker services.

"This is a very troubling development that will have far-reaching consequences," Hannemann said.

In a news release yesterday, Lingle said the state will ask federal Bankruptcy Judge Lloyd King not to approve the shutdown of Aloha's interisland and transpacific flight operations.

The state said it will also seek financial information from the court "to determine whether the shutdown is in fact necessary."

"We fully understand the urgency Aloha's decision has created for the employees and their families, and we will do everything we can to assist the employees during this very difficult time," Lingle said.

Speaking through a company spokesman, Banmiller, Aloha's CEO, said Lingle's comments questioning the necessity of the shutdown are "misinformed."

Banmiller said Aloha has been in close contact with the Lingle administration for weeks seeking "possible political and government support" and that company executives told the administration that they had no substantive offers for Aloha.

Over the past year, the company received minimal support from the administration and other lawmakers, Banmiller said.

The chances that Aloha could save or resurrect its passenger service appear slim. In a filing yesterday, the company asked judge King for approval to return its Boeing 737-700 and 737-200 aircraft and other equipment, which had been leased.

The airline, which had $3.8 million in unrestricted cash when it filed for bankruptcy this month, said its cash holdings were down to $900,000 yesterday.

The company said it couldn't find a lender to keep it flying.

The company said in a filing Friday that lender GMAC Commercial Finance was willing to provide another $3 million in loans but only if the money was used to finance the company's profitable divisions such as its air cargo unit, and not used to pay for operating costs for Aloha's passenger service.

Analysts said Aloha's demise means that go! was able to accomplish its goal of driving the state's No. 2 carrier out of the market.

They cited e-mails uncovered in a lawsuit against Mesa in which Mesa's chief financial officer at the time, Peter Murnane, stated: "We definitely don't want to wait for (Aloha) to die, rather we should be the ones who give them the last push."

Forman, the aviation industry historian, said Aloha did not fail because it was unable to compete in a fair fight. It lost because government regulators "allowed predatory fares to go on for more than a year and a half."

Scott Hamilton, a Washington state-based aviation industry consultant added: "I always said it was a war of attrition and the winner is the one with the most cash and Aloha had the least cash."

Longtime Aloha employees said they were saddened by today's news.

Kawika Lum, an Aloha flight attendant for the past six years, said many of his co-workers spent much of yesterday on the phone consoling each other. He added that several dozen off-duty workers went to the airline's facilities at Honolulu International Airport to help passengers and fellow workers.